Impact of Urban Microfinance on the Lives of Slum Dwellers

Bangladesh, a country located in eastern South Asia, is geographically small but has a significant population, making it the 8th most populous country in the world with around 168 million people. Rapid urbanization has been a defining trend in Bangladesh, with the urban population increasing from 4% in 1950 to 34% in 2015 and projected to reach 56% by 2050. Dhaka, the capital city, is a prime example of this urbanization trend, with a population of 18.2 million, many of whom have migrated from various parts of the country. This rapid urbanization has led to the growth of urban slums, creating unique challenges and opportunities for development initiatives. One such initiative is urban microfinance, which has been operating in Bangladesh since 1984 and has shown significant promise in addressing the financial needs of urban slum dwellers. This paper aims to explore the impact of urban microfinance programs (UMP) on these communities, particularly in Dhaka city.

Bangladesh has experienced a dramatic increase in urbanization over the past few decades. The urban population has grown from a mere 4% in 1950 to 34% in 2015, and it is projected to reach 56% by 2050. This rapid urbanization is driven by various factors, including economic opportunities, better access to education and healthcare, and the search for a better quality of life. Dhaka, the capital city, has become a major destination for migrants from rural areas and other parts of the country. Its central location and economic opportunities have made it a growth magnet, attracting a significant portion of the population. However, this rapid urbanization has also led to the growth of urban slums, which now house a substantial portion of the urban population.

Urban microfinance programs (UMP) have been operating in Bangladesh since 1984, initiated by a non-governmental organization (NGO) named Manabik Shahajya Sangstha (MSS) in Dhaka city. These programs aim to provide financial and non-financial services to urban slum dwellers, helping them improve their economic conditions and overall quality of life. Over the years, the number of microfinance institutions (MFIs) has grown, with about 30% of them now operating in urban areas. These institutions have played a crucial role in providing access to credit and other financial services to urban slum dwellers, who often lack formal banking options.

Urban microfinance programs face unique challenges compared to their rural counterparts. One of the primary challenges is the higher mobility of urban slum dwellers. Residents of urban slums are more likely to change residences and move across cities or towns, making it difficult for MFIs to track and manage credit disbursements. This mobility adds an element of risk that was not as prevalent in rural areas, where communities tend to be more stable. As a result, MFIs were initially more comfortable with microcredit disbursements in rural areas and were reluctant to expand to urban areas. However, over time, this challenge has been addressed, and recent data shows an increase in microcredit disbursements in urban areas.

Despite the challenges, urban microfinance programs have shown significant impact on the lives of urban slum dwellers. These programs provide access to credit, savings, and other financial services, enabling individuals to start small businesses, invest in education, and improve their living conditions. The non-financial services, such as training and support, also play a crucial role in enhancing the capacity of borrowers to manage their finances and businesses effectively. By providing these services, urban microfinance programs help to reduce poverty and improve the overall economic conditions of urban slum dwellers.

Urban microfinance programs have emerged as a vital tool in addressing the financial needs of urban slum dwellers in Bangladesh. Despite the challenges posed by the urban environment, these programs have shown significant promise in improving the economic conditions and quality of life of the beneficiaries. As urbanization continues to grow, the role of urban microfinance in supporting sustainable development in urban areas will become even more critical. Continued innovation and adaptation of these programs will be essential to ensure their long-term success and impact.

: World Population Review

: UNDP

: Manabik Shahajya Sangstha (MSS)

: Microfinance Regulatory Authority (MRA)